[Federal Register Volume 89, Number 171 (Wednesday, September 4, 2024)]
[Notices]
[Pages 71958-71961]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19767]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100857; File No. SR-EMERALD-2024-22]


Self-Regulatory Organizations: MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify 
the Excessive Quoting Fee

August 28, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 15, 2024, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Emerald Fee 
Schedule (the ``Fee Schedule'') to modify the Excessive Quoting Fee. 
The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings, at MIAX Emerald's principal office, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Section 1)c) of the Fee Schedule to 
add another exemption to the daily Excessive Quoting fee. The Exchange 
filed the initial proposal on August 5, 2024 (SR-EMERALD-2024-20). On 
August 15, 2024, the Exchange withdrew SR-EMERALD-2024-20 and 
resubmitted this proposal.
    For background, the Exchange adopted the Excessive Quoting Fee as a 
result of a significant upgrade to the MIAX Emerald System \3\ network 
architecture, based on customer demand, which resulted in the 
Exchange's network environment becoming more transparent and 
deterministic.
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    \3\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    Pursuant to the Excessive Quoting Fee, the Exchange will assess a 
fee of $10,000 per day to any Market Maker \4\

[[Page 71959]]

that exceeds 3.5 billion inbound quotes \5\ sent to the Exchange on 
that particular day. However, the daily Excessive Quoting Fee will not 
be assessed for the first day that a Market Maker exceeds the 3.5 
billion inbound quote limit in a rolling 12-month period.\6\ In 
counting the total number of quotes for the purposes of the Excessive 
Quoting Fee, the Exchange excludes messages that are generated as a 
result of sending a mass purge message to the Exchange (i.e., cancel/
replace messages). The 3.5 billion inbound quote limit for the 
Excessive Quoting Fee resets each trading day.\7\
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    \4\ The term ``Market Maker'' refers to ``Lead Market Maker'' 
(``LMM''), ``Primary Lead Market Maker'' (``PLMM'') and ``Registered 
Market Maker'' (``RMM''), collectively. See the Definitions Section 
of the Fee Schedule and Exchange Rule 100.
    \5\ The term ``quote'' or ``quotation'' means a bid or offer 
entered by a Market Maker that is firm and may update the Market 
Maker's previous quote, if any. The Rules of the Exchange provide 
for the use of different types of quotes, including Standard quotes 
and eQuotes, as more fully described in Rule 517. A Market Maker 
may, at times, choose to have multiple types of quotes active in an 
individual option. See the Definitions Section of the Fee Schedule.
    \6\ This exemption was established in 2023. See Securities 
Exchange Act Release No. 98088 (August 8, 2023), 88 FR 55096 (August 
14, 2023) (SR-EMERALD-2023-20).
    \7\ See Fee Schedule, Section 1)c).
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Proposal
    The Exchange proposes to amend Section 1)c) of the Fee Schedule to 
establish another exemption to the daily Excessive Quoting Fee. In 
particular, the Exchange proposes that, notwithstanding the exemptions 
described above, the Exchange may determine not to assess the Excessive 
Quoting Fee in times of extraordinary market conditions, with such 
determination to be made by a designated Exchange Official. The 
Exchange notes that its rules already provide other instances of review 
by an Exchange Official in times of extraordinary or unusual market 
conditions; accordingly, such review is not new or novel.\8\
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    \8\ See, e.g., Exchange Rule 506(d)(1).
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    The Exchange provides the following example of how the proposed 
exemption would operate. On Day 1, if Marker Maker ``Firm A'' exceeds 
3.5 billion inbound quotes, the Exchange would not assess the Excessive 
Quoting Fee because this is the first trading day within a rolling 12-
month period in which that particular Market Maker surpassed the 3.5 
billion inbound quote limit. On Day 2, if Firm A again exceeds 3.5 
billion inbound quotes the Exchange would normally assess the Excessive 
Quoting Fee; however, if the Exchange Official determines that 
extraordinary market conditions existed on Day 2, the Exchange would 
not assess the Excessive Quoting Fee on all Market Makers,\9\ including 
Firm A, for exceeding the inbound quote limit on that day. As such, 
Firm A would not be assessed the Excessive Quoting Fee on Day 2, but 
the rolling 12-month period would still be in effect for Firm A. On Day 
3, if Firm A again exceeds 3.5 billion inbound quotes, in the absence 
of extraordinary market conditions declared by the designated Exchange 
Official, the Exchange would assess the Excessive Quoting Fee on Firm 
A.
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    \9\ For Market Makers that did not yet exceed the 3.5 billion 
inbound quote limit, Day 2 would also not count towards the 
exemption in the rule that allows Market Makers to exceed the limit 
one time on a rolling 12-month basis. See Fee Schedule, Section 
1)c).
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    The purpose of this proposal is to provide relief to Market Makers 
when there is increased volatility in the market place to the extent 
that Market Makers may routinely exceed the 3.5 billion inbound quote 
limit over one or more trading days. As previously noted by the 
Exchange, increased volatility in the market place may lead to an 
increase in the number of quotes generated by Market Makers for 
existing options. The result of these types of market conditions and 
factors is that a Market Maker will potentially exceed the 3.5 billion 
inbound quote limit each day while those conditions continue to exist. 
The Exchange believes that this proposal will help allow the Exchange 
to maintain fair and orderly markets based on unusual market conditions 
or extreme volatility, which may impact all participants of the 
Exchange.
    The Exchange believes that the proposed exemption will not 
undermine the purpose of the Excessive Quoting Fee, but will continue 
to balance the interests of Market Makers sending quotes to the 
Exchange, pursuant to their quoting obligations and quoting strategies, 
while ensuring that Market Makers do not over utilize the Exchange's 
System by sending excessive numbers of quotes to the potential 
detriment of other Members \10\ of the Exchange.
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    \10\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
the Definitions Section of the Fee Schedule.
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    The proposal contemplates that extreme market conditions would have 
to occur in order for the Exchange to invoke the proposed exemption. 
The Exchange Official in charge of making such determination would take 
into account several different factors and market conditions. Such 
conditions may include, but are not limited to, swings in major U.S. 
indices (i.e., the S&P 500, Dow Jones Industrial Average, or Nasdaq-100 
Indices) without such indices stabilizing up or down; higher than 
expected or unusual trading volumes; and increased volatility in the 
marketplace. In the Exchange's experience, when there is higher than 
expected price fluctuation, this generates a higher volume of quotes, 
leading to a significant increase in quoting activity by Market Makers.
    The Exchange believes that the process of exempting certain trading 
days from counting towards the Excessive Quoting Fee is similar to that 
utilized by NYSE Arca, Inc. (``NYSE Arca'') for exempting certain 
trading days from counting towards NYSE Arca's ``Monthly Excessive 
Bandwidth Utilization Fee,'' \11\ although the substantive basis for 
the exemptions are different.
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    \11\ See NYSE Arca Options Fees and Charges, page 13, available 
at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (``The Exchange may exclude one 
or more days of data for purposes of calculating the Fee for an OTP 
Holder or OTP Firm if the Exchange determines, in its sole 
discretion, that one or more OTP Firms or the Exchange was 
experiencing a bona fide systems problem.'').
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    The Excessive Quoting Fee was not intended to be a source of 
revenue for the Exchange, as the Exchange noted in its proposals to 
adopt the Excessive Quoting Fee and increase the inbound quote 
limit.\12\ Rather, the Excessive Quoting Fee was designed to ensure 
that Market Makers do not over utilize the Exchange's System by sending 
excessive numbers of quotes to the Exchange, potentially to the 
detriment of all other Members of the Exchange. The proposed exemption 
provides relief during times of extraordinary market conditions, based 
upon review by a designated Exchange Official, and will not undermine 
the purpose of the Excessive Quoting Fee, but will continue to balance 
the interests of Market Makers sending quotes to the Exchange, pursuant 
to their quoting obligations and quoting strategies and not over 
utilize the System. The Exchange also notes that since the adoption of 
the Excessive Quoting Fee in early 2021, the Exchange assessed the 
Excessive Quoting Fee only one time.
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    \12\ See Securities Exchange Act Release Nos. 91406 (March 24, 
2021), 86 FR 16795 (March 31, 2021) (SR-EMERALD-2021-10) and 94368 
(March 7, 2022), 87 FR 14051 (March 11, 2022) (SR-EMERALD-2022-09). 
See supra note 6.
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Implementation
    The proposed changes are immediately effective.
2. Statutory Basis
    The Exchange believes that its proposal to amend the Fee Schedule 
is

[[Page 71960]]

consistent with Section 6(b) of the Act \13\ in general, and furthers 
the objectives of Section 6(b)(4) and (5) of the Act \14\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees, and other charges among its Members and issuers and other persons 
using its facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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The Proposed Rule Change is Reasonable
    The Exchange operates in a highly competitive market. The 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. In Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.\15\
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    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS 
Adopting Release'').
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    There are currently 17 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than approximately 16-
17% of the market share of executed volume of multiply-listed equity 
and exchange-traded fund (``ETF'') options trades.\16\ Therefore, no 
exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
for the month of July 2024, the Exchange had a market share of 4.40% of 
executed volume of multiply-listed equity and ETF options trades.\17\
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    \16\ See the ``Market Share'' section of the Exchange's website, 
available at https://www.miaxglobal.com/ (last visited August 5, 
2024).
    \17\ See id.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. Accordingly, competitive forces 
constrain options exchange transaction fees. Stated otherwise, 
modifications to exchange transaction fees can have a direct effect on 
the ability of an exchange to compete for order flow.
    The Exchange believes that the proposed exemption is reasonable 
because it provides relief to Market Makers from the Excessive Quoting 
Fee in times of extraordinary market conditions, based upon review of 
several factors by a designated Exchange Official. The Exchange 
believes the proposed exemption will not undermine the purpose of the 
Excessive Quoting Fee, but will continue to balance the interests of 
Market Makers sending quotes to the Exchange, pursuant to their quoting 
obligations and quoting strategies, while ensuring that Market Makers 
do not over utilize the Exchange's System by sending excessive numbers 
of quotes to the potential detriment of other Members of the Exchange. 
In the backdrop of the competitive environment in which the Exchange 
operates, the proposed rule change is a reasonable attempt by the 
Exchange to mitigate effects of an ever-changing marketplace without 
affecting its competitiveness or the quantity of quotes being sent by 
Market Makers. The Exchange also believes that the process of exempting 
certain trading days from counting towards the Excessive Quoting Fee is 
similar to that utilized by NYSE Arca, Inc. (``NYSE Arca'') for 
exempting certain trading days from counting towards NYSE Arca's 
``Monthly Excessive Bandwidth Utilization Fee,'' \18\ although the 
substantive basis for the exemptions are different.
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    \18\ See supra note 11.
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The Proposed Rule Change is an Equitable Allocation of Fees
    The Exchange believes the proposed change is an equitable 
allocation of fees. The proposed exemption is an equitable allocation 
of fees because it would be available to all Market Makers. All Market 
Makers would be eligible for the exemption during times of 
extraordinary market conditions. For clarity, when the Exchange 
Official determines that extraordinary market conditions exist, every 
Market Maker of the Exchange would qualify for the proposed exemption 
and not be subject to the Excessive Quoting Fee on that particular 
trading day(s).\19\ In addition, to the extent the exemption encourages 
Market Makers to maintain their quoting activity on the Exchange by 
mitigating the initial impact of the Excessive Quoting Fee, the 
Exchange believes the proposed change would promote market quality to 
the benefit of all market participants.
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    \19\ See supra note 9.
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The Proposed Rule Change is not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory because it neither targets nor will it have a disparate 
impact on any particular type of Market Maker. The Exchange believes 
the proposed exemption is not unfairly discriminatory because it would 
apply to all Market Makers on an equal and non-discriminatory basis. 
The Exchange believes that the proposed change would encourage Market 
Makers to continue quoting on the Exchange during times of 
extraordinary market conditions, which will help maintain fair and 
orderly markets to the benefit of all Exchange market participants. The 
proposed exemption would thus support continued quoting and trading 
opportunities for all market participants, thereby promoting just and 
equitable principles of trade, removing impediments to and perfecting 
the mechanism of a free and open market and a national market system 
and, in general, protecting investors and the public interest.
    The Exchange will continue to review the quoting behavior of all 
firms in connection with changing market conditions and technology or 
algorithm changes on a regular basis to ensure that the proposed 
exemption is providing relief for Market Makers as intended.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act, the Exchange does 
not believe that the proposed rule change would impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed change would encourage the submission of additional 
quotes to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for all market participants.
Intramarket Competition
    The Exchange does not believe the proposed changes would impose any 
burden on intramarket competition that is not necessary or appropriate. 
The proposed exemption would apply equally to all Market Makers during 
times of extraordinary market conditions. To the extent the proposed 
change is successful in encouraging Market Makers to maintain their 
quoting activity on the Exchange, the Exchange believes the proposed 
change will

[[Page 71961]]

continue to promote market quality to the benefit of all market 
participants.
Intermarket Competition
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 17 competing option 
exchanges if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and to attract 
order flow to the Exchange. Based on publicly-available information, 
and excluding index-based options, no single exchange has more than 
approximately 16-17% of the market share of executed volume of 
multiply-listed equity and ETF options trades.\20\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
for the month of July 2024, the Exchange had a market share of 4.40% of 
executed volume of multiply-listed equity and ETF options trades.\21\
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    \20\ See supra note 16.
    \21\ See id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\22\ and Rule 19b-4(f)(2) \23\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-EMERALD-2024-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-EMERALD-2024-22. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-EMERALD-2024-22 and should 
be submitted on or before September 25, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19767 Filed 9-3-24; 8:45 am]
BILLING CODE 8011-01-P